The Euro and Dollar Have Reached Parity for the First Time in Two Decades

If it’s been some time since your last trip to Europe, you might be pleasantly surprised by the exchange rate. Over the last year, the dollar-euro conversion has consistently declined. As of Tuesday, one euro was equivalent to one U.S. dollar, marking the first parity since December 2002.

At the time of reporting, the euro was valued at exactly $1.003, just a hair shy of parity—and it may fluctuate slightly in the coming hours and days as currency markets react to ever-changing economic conditions. A year ago, the dollar was around $1.20 against the euro.

The strength of the dollar against the euro is a reassuring development for Americans traveling to Europe, helping to alleviate the burden of soaring airfares (driven by rising oil prices and staffing shortages) and inflation affecting everything from food to services on both sides of the ocean. This could also ease worries for U.S. travelers about the reported chaos and crowds at airports like London’s Heathrow and Amsterdam Schiphol International Airport.

The eurozone includes 19 nations within the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. On Tuesday, EU finance ministers officially welcomed Croatia as the 20th member to adopt the euro as its currency starting in 2023.

The dollar is also strengthening against other currencies, including the British pound, which fell to $1.185 on Tuesday, the lowest level since March 2020, as reported by The Guardian. The British newspaper pointed to political uncertainty surrounding the leadership race to replace Boris Johnson after his resignation and “economic gloom” as contributing factors to the pound's decline.

For American travelers, the majority of trips to Europe in the past twenty years have involved an exchange rate “tax”—they’ve become accustomed to calculating an extra 20, 30, 40, or even 50 to 60 percent more than the euro prices for hotel stays, café au lait, croissants, glasses of vino, or museum entries. What ultimately appears on their bank statements in the U.S. is the dollar equivalent of their euro expenditures, making that additional cost a harsh reality check post-vacation.

Even minor shifts in exchange rates can significantly impact vacation budgets. For example, consider your hotel stay abroad, often the largest expense (if not the largest) for any trip. One of our favorite new properties in Paris, Hotel Paradiso, has guest rooms starting at 176 euros per night. A year ago, with an exchange rate of $1.20 per euro, that would have been $211 per night. Today, it costs only $176.

The dollar may continue its upward momentum. While currency forecasting is complex and often unpredictable due to various global economic factors, Bloomberg reported on July 6 that traders are increasingly confident the euro will soon dip below parity with the dollar.

The dollar’s rise is primarily attributed to the Federal Reserve's aggressive interest rate hikes aimed at curbing the highest U.S. inflation seen in four decades, outpacing the efforts of central banks in other countries.

Rubeela Farooqi from High Frequency Economics points out that one of the factors enhancing the dollar’s attractiveness is that, despite worries about a potential recession in the U.S., “the U.S. economy is in a stronger position than Europe.”

Associated Press provided reporting for this story. Originally published in May 2022, it was updated on July 12, 2022, to incorporate the latest information.